Carbon Neutral Oscars: Will the IRS Take Note?

February 27, 2007 — HOLLYWOOD’S wealthy liberals can now avoid any guilt they might feel for consuming so much non-renewable fossil fuel in their private jets, their SUVs, and their multiple air-conditioned mansions. This year’s Oscar goodie bag contained gift certificates representing 100,000 pounds of greenhouse gas reductions from TerraPass, which describes itself as a “carbon offset retailer.” The 100,000 pounds “are enough to balance out an average year in the life of an Academy Award presenter,” a press release from TerraPass asserts. “For example, 100,000 pounds is the total amount of carbon dioxide created by 20,000 miles of driving, 40,000 miles on commercial airlines, 20 hours in a private jet and a large house in Los Angeles. The greenhouse gas reductions will be accomplished through TerraPass’ [program] of verified wind energy, cow power [collecting methane from manure] and efficiency projects.” Voila, guilt-free consumption! It reminds us of the era when rich Catholics paid the church for “dispensations” that would shorten their terms in Purgatory.

Oscar goodie bags had once reached heights of extragavance, with jewelry and fashions, diamond-encrusted gee-gaws and other promotional gifts valued as high as $100,000. But then the IRS woke up and realized these gifts had a value, concluding that any gifts exceeding $600 had to be reported as income (IRS Form 1099). The result? Fewer gift bags and instead elaborate maneuvers to provide promotional favors while still meeting — or evading, as the case may be — the reporting limits.

TerraPass touts its Oscar-friendly carbon-coupons as an alternative to the goodie bags, writing in its blog:

The Academy decided this year to get rid of the gift bags. They had outlived their usefulness as a means of expressing gratitude — nothing says thank you like a massive tax bill.

This is where TerraPass comes in. Looking for a more restrained token of appreciation in keeping with the spirit of the evening, the Academy decided to give each presenter and performer a year of carbon neutral living. The gift consists of a glass sculpture from designer Simon Pearce and 100,000 lbs of CO2 reductions from TerraPass.

OK, but are the Hollywood recipients paying tax on the value of these items? The Simon Pearce sculpture retails for $650 (although that price includes 30 metric tons of carbon dioxide reductions), and TerraPass sells 20,000 lbs. of CO2 reductions for $79.95, so 100,000 lbs. would go for $399.75. We’re not accountants, but that combination looks taxable to us.

Unless, of course, the carbon certificates represent no real value, in which case the entire exercise is feel-good PR that only amounts to sanctimony and pretty, pretty posturing.

But Hollywood wouldn’t do that, would it?

Anyway, it’s serious question to ponder: How is the IRS handling the tax consequences of these kind of carbon certificates, which supposedly represent a value in conservation or “clean energy” production?

Join the discussion 2 Comments

First of all, let me say that I’m impressed with the digging you’ve done into the numbers. Most people pay little attention to the underlying economics of carbon reductions, and we at TerraPass always appreciate a good, numbers-based analysis.

The Academy was very well aware of the $600 gift limit. The total cost of the sculpture and carbon came to $575 per recipient.

As you note, the sculpture retails for $650. You’d have to raise the price to about $785 if you also wanted the full 100,000 lbs of CO2 reductions. This figure is close to what the Academy paid, but is obviously a bit higher. Why the discrepancy?

The answer is probably pretty obvious, but you always get a better deal on something when you buy wholesale in bulk. If you’re in the market for 100 glass sculptures and 10 million lbs of CO2, please give us a call. I’m sure we can work something out.